22nd January 2013
There is certainly a case to argue. America has had its fiscal cliff crisis and in the next few weeks will witness further rows about spending and the debt ceiling. Europe continues to grapple with the eurozone crisis and now with worrying levels of unemployment and even Japan has devalued in a controversial bid to finally kick start its flagging economy.
The emerging economies are adamant that, among other things, they will definitely avoid the mistakes of Western 'welfare' states. They suggest that they will not see their finances wrecked by too many promises to the population as the Telegraph’s Philip Aldrick reported this week.
At Mindful Money, we think it is little more complicated that simply East versus West or welfare versus some other system. Some developing countries need to put their minds to ending widespread poverty for example. Big defence-spending India springs to mind. In fact the economic and social approach varies dramatically country by emerging country. China’s one child policy is sure to strain the country eventually whether it has unfunded promises or not, because there will be a demand for a basic standard of welfare.
The choices in the West are also restricted to some extent by demographics. Costs rise not just for pensions, but for healthcare and increasingly long term care when a population is ageing. Whether healthcare is primarily provided through state institutions, social insurance or the private sector, it still takes a huge proportion of national income and that looks set to rise. That said some of the eurozone pension settlements such as those in Greece have always looked unsustainable and so it has proved.
Yet it is not easy to change things. The recent debates and discussions in the United Kingdom over welfare, child benefits and the state pension show just how difficult it is to effect radical change.
But there is one area where what might loosely be called the West could learn from what might loosely be called the East. That is in the area of savings and investment. In the West and in the US and the UK in particular, we have generally lost the savings and investment habit.
Working out how and why many emerging market countries have saved whereas we have not could provide some useful lessons. It could also provide an important source of capital to fire up our economy. It might mean our populations could display more ‘resilient dynamism’ as well – the overarching theme at Davos this year.
Then again we think many of the answers lie not in the policies adopted by the emerging economies, by governments democratic, semi-democratic and authoritarian but in the culture, attitudes and habits of the people. While we are at it, we might also give some thought to why some people in Britain have saved and others have not. Policymakers might also consider whether with low interests, quantitative easing and relatively high inflation, it is fair to make savers do a lot of the economic heavy lifting for much longer.
These days, in a bid to not appear too elitist, WEF invites Oxfam and other charities and even the trade unions into the conference proper. But perhaps they need to invite representatives of the world's savers too.